I was fascinated to observe how quickly the world would learn that it really doesn't matter:
- First, the Washington Post and two Harvard Professors noticed that banks were not cutting dividends despite their massive losses. Dividend payments are one way to neutralize the Treasury purchases.
- Second, reporters noticed that PNC financial took its Treasury cash and immediately bought National City Bank.
- Third, reporters heard that JP Morgan Chase CEO told his employees that Treasury cash would help them acquire competitors.
All of this in only a few weeks! And I had worried that it would take years of careful academic study to prove my point.
Read all about this in my new Economists' Voice article "Is the Treasury Impotent?" Despite (or because of?!) the evidence that Treasury investments are not helping capitalize banks, Professor Mankiw still thinks they are a good idea.